Turning Consumers into Customers

The expression “supply and demand” was first coined as “demand and supply,” by James Denham-Steuart in An Inquiry into the Principles of Political Oeconomy, written in 1767. In his Inquiry, Denham-Steuart says of demand, “it must constantly appear reciprocal. If I demand a pair of shoes, the shoemaker either demands money, or something else for his own use,” adding, “The nature of demand is to encourage industry.” Nine years later, in The Wealth of Nations, Adam Smith wrote, “The real and effectual discipline which is exercised over a workman is that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence.”

It helps to revisit these elementary lessons because we’ve been ignoring them on the Web — at the cost of billions of dollars in lost opportunities for businesses other than those driven by advertising and “big data” farming.

To see what I mean, consider this fact: you are not a customer of Facebook or Twitter. Nor of Google’s search, mail, and other free services. The actual customers of those companies are advertisers, not you. In fact, you and I are the products being sold to advertisers. No matter how well those companies serve us with free goodies, the fact remains that these companies’ consumers and customers are different populations, and we are among the former, and not the latter, because we pay them nothing. In Adam Smith’s terms, we do not employ them.

And, because we are merely consumers of these services, our concerns tend to be dismissed when they are in conflict with the ambitions of those services’ customers, the advertisers. This is why websites, advertisers and third parties take liberties with our personal data, our privacy, and our tolerance for “personalization” of messages that still fail 99% of the time.

This causes two problems. One is abuse of consumers. The other is a lack of what we could bring to the market’s table — besides money — if we were full-fledged customers. Addressing the first problem are consumer protection efforts. Addressing the second problem are customer empowerment efforts.

An excellent source of ongoing documentation of consumer abuse isThe Wall Street Journal‘s “What They Know,” a series of reports begun on July 31, 2010. And, since journalism alone has proven insufficient for reversing the tide of abuse, Julia Angwin and the WTK team are convening Data Transparency Weekend starting this Friday in New York. The purpose is to “build free Web tools that promote data transparency and control.” This is a strong move toward giving consumers the powers of customers, whether or not they pay anything.

In fact there are already dozens of developers working on customer empowerment, through a new category of tools called VRM, for Vendor Relationship Management. Think of these as the customer-side counterpart of Customer Relationship Management (CRM), the multi-billion-dollar business that gives us call centers and junk mail. (My own involvement in this movement is through ProjectVRM, at Harvard’s Berkman Center, which I’ve led since 2006.)

While consumer protection efforts are getting the most attention at the moment, customer empowerment holds the most promise in the long run, because it provides the “real and effectual discipline” that improves old markets and makes new ones. Knowing the real intentions of customers is a far better form of business intelligence than any amount of guesswork, no matter how “big” the data is behind it.